Washington Underinsured Motorist Insurer Does Not Have to Turn Over Litigation Materials in Bad Faith Case

Following a Washington automobile accident, a seriously injured person may have to deal with various insurance companies. Although dealing with an insurance company can be difficult, insurers are prohibited from acting in bad faith or engaging in unfair practices.  If the insurer does act improperly, the claimant may be able to pursue an insurance bad faith claim.  In a bad faith case, the insurer’s files may be important evidence.

In a recent case, the plaintiff sought documents and information created during litigation of the bad faith case. The plaintiff was injured in an automobile accident with a drunk driver.  After settling for policy limits with the at-fault driver’s insurance, she filed an underinsured motorist claim.  According to the appeals court’s opinion, the underinsured motorist policy limit was $50,000.  The insurer offered $2,500.  The plaintiff demanded $100,000.  She ultimately filed suit against the insurance company for unfair claims settlement practices and bad faith.  She alleged her damages “far exceeded” the policy limits.

In response to discovery requests, the plaintiff denied the damages payable by the insurer exceeded $75,000, which is the threshold amount in controversy for a case to be removed to federal court on diversity jurisdiction. She responded to a question regarding whether she sought trebling or any multiplier of damages affirmatively. She also stated she intended to seek punitive damages if there was a determination the insurer violated the Insurance Fair Conduct Act.  She acknowledged the amount in controversy could exceed the $75,000 threshold, but offered to stipulate that the amount in controversy did not exceed that $75,000.  The parties never reached agreement on the language for the stipulation.  The insurer informed the plaintiff it would seek removal if the plaintiff did not sign the stipulation.

The defendant removed the case to federal court, arguing there was diversity jurisdiction because the parties were citizens of different states.  The insurer also argued the amount in controversy was more than $75,000 because the plaintiff might seek more than that amount from the jury, even if she would agree not to accept a judgment for more than $75,000.

The federal court granted the plaintiff’s motion for remand to state court.  The federal court stated the insurer could not insist on limiting the evidence the jury could hear, but also stated the plaintiff could not seek more than $75,000 from the jury.

Back in state court, the plaintiff propounded a discovery request asking the insurer to “explain every reason [the insurer] had for removing…” the case to federal court.  The insurer objected, arguing the plaintiff sought privileged information and information protected by attorney work product doctrine.

The plaintiff ultimately moved to compel an answer.  She claimed the insurer acted in bad faith in removing the case and the fraud exception to attorney-client privilege applied.  At the hearing, the plaintiff argued the insurer’s conduct during the litigation could be evidence of bad faith.  The insurer argued that conduct within litigation could not form the basis of a bad faith claim.

The trial court instructed the insurer to answer, create a privilege log, and submit the items in the privilege log to the court for review.  The insurer moved for reconsideration, but the trial court denied the motion.  The insurer then sought discretionary review by the appeals court.

Under the Civil Rules of Procedure, discovery has a broad scope.  However, communication between the client and the attorney and advice given by the attorney is generally protected by attorney-client privilege.  Additionally, documents or materials created in anticipation of litigation are protected by the attorney work product doctrine.  The work product doctrine protects an attorney’s “mental impressions, conclusions, opinions or legal theories…” There must be “extraordinary circumstances” for a court to require release of this kind of work product.  A court may, however, require a party to release factual information compiled in anticipation of litigation if the other party has a substantial need for the information and cannot obtain it otherwise without undue hardship.

In bad faith claims against an insurer, however, there is a presumption against attorney-client privilege or work product doctrine applying to claim processing records.  Courts have held, however, that an underinsured motorist insurer has the right to legal advice to strategize the same defenses as the at-fault driver.  The appeals court has also held that litigation strategy created during underinsured motorist litigation is not discoverable.  The appeals court found the insurer’s “attorneys’ mental impressions, theories, and litigation strategies are not discoverable.”

The trial court ordered production because it found the plaintiff had enough facts to give rise to a reasonable belief of civil fraud.  To find if the civil fraud exception applies, the court must determine if there are sufficient facts to support a reasonable person’s good faith belief of “wrongful conduct sufficient to [in]voke the fraud exception.”  The court must then review the privileged documents to determine if there is a foundation for a civil fraud charge.

The appeals court found, however, that there was nothing in the record to support a reasonable belief the insurer’s removal of the case was anything other than a legitimate strategy.  The insurer included its analysis for why the amount in controversy exceeded the threshold amount in its removal pleadings.  The federal court did not indicate the insurer had acted improperly in removing the case.  The federal court noted that the plaintiff could not seek more than $75,000 from the jury.  It did not award her attorney fees.

The appeals court found the trial court had abused its discretion in finding the insurer’s removal of the case to federal court was enough to require the insurer to produce information related to its litigation strategy.  It also denied her request for sanctions and attorney fees.

If you were seriously injured in an automobile accident, an experienced Washington personal injury attorney can help you identify and pursue all potential sources of recovery.  Schedule an appointment with Blair & Kim, PLLC, by calling (206) 622-6562.